NHL, owner to face off in court over Coyotes relocation

NHL, owner to face off in court on relocation

Today's arguments from a Phoenix courtroom will resonate across the continent as the Coyotes bankruptcy case raises broad issues that could impact professional sports teams.

One question is whether a sports franchise bankruptcy trumps a sports league's control over moving the team to another location. The other is whether bankruptcy can suck the power out of a contract with a city that poured millions of taxpayer dollars into a sports venue.

With the unfolding drama, one of the least-watched teams on the ice has become the most-watched from the courtroom.

"You can really see an interesting case developing here," said John Vrooman, a sports economist at Vanderbilt University. "All leagues have a vested interest in this decision."

The ice hockey franchise, which has lost money since moving to Arizona 13 years ago, filed for bankruptcy protection last month. Owner Jerry Moyes seeks to sell the team to Jim Balsillie for $212.5 million, contingent on relocation to Ontario, Canada, unless a higher offer is made. The National Hockey League and Glendale oppose the move.

Judge Redfield T. Baum will listen to a slew of attorneys today arguing whether or not a relocation should be allowed.

The National Football League, the National Basketball Association and Major League Baseball together filed a legal brief in support of the NHL.

Like the NHL, the three sports leagues follow similar rules, requiring a vote of team owners on new ownership and relocation.

The pro sports leagues maintain that an individual team is not wholly independent, but relies on other teams in the league through revenue sharing, and at the most basic level, to play a single game. The NHL and other leagues say their rules are set up to further league goals and interests as a whole.

Attorneys representing professional football, basketball and baseball said a decision against league control over relocation would "encourage financially challenged franchises to turn to bankruptcy courts to circumvent league rules."

Attorneys for Moyes argue that Balsillie's offer provides the most benefit to the team's creditors, and that the application for ownership and relocation meets NHL rules.

The NHL counters that relocation to the presumably more lucrative Canadian market would entitle the league to a relocation fee that would "dwarf" Balsillie's offer and leave less money for creditors.

Both sides point to past cases of professional franchises that may or may not sway the case.

Antitrust issue

In 1982, football team owner Al Davis won a claim that the NFL violated antitrust laws when it denied the Oakland Raiders a move to Los Angeles.

The ruling found the football league was not a single enterprise, but made up of separate entities. Therefore, the issue fell under the Sherman Act, which protects competition in the market.

Moyes' attorneys argue the NHL has similar restrictions on competition. They say league rules can give other teams control over a move, that a single owner has absolute veto power over another team's relocation to a site within 50 miles of the owner's franchise.

The attorneys characterize this as a cartel, which allows a team to "act as a monopolist in its home territory." In this case, that would be the Toronto Maple Leafs, near the Coyotes' proposed new home of Hamilton. The Coyotes say the region could use the competition: The Maple Leafs charge the league's highest average ticket price, $76.15.

But attorneys for the NHL, in their filing, say a single club owner can't decide a team's relocation. Rather, they say it requires a three-fourths vote of all member clubs.

They argue that in the Raiders case, the courts found that the football league could have objected to a relocation if it had objective criteria for the matter.

And, they say, the NHL has such rules, a set of 24 factors to be used when weighing relocation. Some of those factors: whether the owner has made a good-faith effort to find a buyer to operate the team in the current location, whether the club could be operated in the current location in a more cost-effective manner, and the impact on the league's image.

In the end, the hockey league maintains the case does not rise to the level of an antitrust dispute, and even if it did, Moyes' claims are premature. Balsillie submitted his relocation application just last week and the league has not yet acted on it.

Glendale's claims

The judge could avoid antitrust arguments by taking up Glendale's legal claims.

The city, which invested $180 million in a hockey arena, argues its 30-year contract with the Coyotes prohibits a move to Canada - similar to a bankruptcy judge's 1999 ruling that stopped the NHL's Penguins from leaving Pittsburgh.

The Penguins sought to leave Pittsburgh, but lost the case when a court ruled the city "would not have an adequate remedy" for its losses, including improvements it made to the Pittsburgh Civic Arena.

Glendale's attorney argues the city invested in a hockey venue with the expectation that the team and the commercial development connected to the arena, Westgate City Center, would generate millions.

Glendale, too, says it could not seek a remedy to "the deep and lasting harm the team's relocation would cost the city and its residents." Balsillie's offer, $212.5 million, doesn't approach the $500 million in tax revenue and fees Glendale estimates it would lose over the remaining 25 years of the contract.

Moyes' attorneys reject comparisons to the Penguins case, in which the owners clandestinely met with potential buyers around the country. The Coyotes maintain they repeatedly discussed the team's severe financial woes with the city and sought concessions to ease losses and make it more likely that a new owner could keep the team in Glendale.

Baum is not expected to rule from the bench, although he expects to rule promptly.

Many will be watching.

"In our world this is big stuff," said Scott Rosner, associate director of the Wharton Sports Business Initiative at the University of Pennsylvania.